Posted by Jim McClaflin, EA, NTPI Fellow

What You Need to Know When Deducting Your Home Office

What You Need to Know When Deducting Your Home Office

When you start a new business venture, most of them begin in your home office. Therefore, it is important to track your expenses for that home office, as you may find that you have plenty of deductions available to reduce your tax liability. By working with your tax professional or accountant, such as Jim McClaflin in Grimes, IA, you can determine which deductions you are eligible for. Here are some of the requirements and key points to know about taking a home office deduction.


Specific Requirements


The IRS lists specific requirements a taxpayer must meet in order to claim home office deductions. It is important to make sure you do meet these qualifications. Working with your tax professional, they can determine if you can indeed take this deduction.

If you meet the IRS’ requirements, then you may be able to deduct a percentage of several different expenses related to the running of your home. These include:


  • Real estate property taxes
  • Mortgage interest
  • Rent payments
  • Utilities
  • Homeowner’s or Renter’s Insurance
  • Depreciation on your home (if you own it)
  • Painting or other repairs

Key Points to Note

 

It is important to note a few things here. One is that you do not want to claim your mortgage interest in two places. Therefore, if you claim your mortgage interest in your Schedule A, you do not want to claim it as part of your home office deduction. Talk with your tax provider to determine where you should claim it to maximize this particular deduction.


So who qualifies for this specific deduction? Self-employed individuals who operate their home business can typically qualify easily for this deduction. But there are two things to keep in mind. One is that you must use that part of your home regularly and exclusively for the business and purposes related to that business. The business part of your home must be your principal place of business or where you meet with clients or customers in the course of your everyday conducting of business.


Detached garages and separate structures can qualify, as long as it meets the requirements above. You can also claim a deduction for an area of your home used to store any inventory or product samples.

If you are a telecommuter, there are some additional requirements that you need to be aware of. One is that your business use must be for your employer’s convenience, but you cannot be renting part of your home to your employer that you then use to perform services for your employer.


One point that individuals struggle with is the regular and exclusive use requirement. If you have a virtual business, such as a freelancer, you do not often see customers in the flesh, so you would qualify. However, you need to keep in mind that it cannot be used for personal use at all. Even if the area is not separated by partition walls or other dividers, you can still mark it as a business only zone.


Work with your tax professional to determine if you are using that area of your home continuously for your business, including the computer. Personal use (such as sending emails for personal use) cannot be mixed with your business use of the area.


Here are two exceptions to the exclusive use rule, if you operate a licensed day care center or you store inventory in your home because you do not have another location for your business.

However, there are many restrictions that also come into play. If you have multiple locations, then you need to prove that your home office is the principal place of business. Yet if all the administrative and management activities happen in your home office, then it automatically qualifies. Another point is that you will not be able to deduct all of the insurance and other expenses. It is based on the percentage of your home that is devoted to the home office.


By working with a tax professional or accountant, you can be sure to maximize all the deductions available under the home office deduction, while confirming that you are meeting all of the IRS requirements. Call or click on the link below to connect with one of the professionals at Accounting & Tax Professionals in Grimes, IA, who can assist you in finding the deductions that will apply to your specific home office.

Jim McClaflin, EA, NTPI Fellow
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